Tim Mullaney, special to CNBC.com
Darren Huston was trying to watch a hockey game,
half-listening to a headhunter talk about a company he had never heard
of before. But as the headhunter went on, the then-45-year-old executive
in charge of Microsoft's global consumer and online businesses tuned
out the arena noise and began listening to what he thought was an
impossible story.
"I said, 'There's nothing that big in Europe on the Internet,''' he recalled, laughing.
"I said, 'There's nothing that big in Europe on the Internet,''' he recalled, laughing.
The 2011 call was from Booking.com, the Amsterdam-based unit of Priceline Group
that dominates the European online travel market. By last year, Huston
became president and CEO of Priceline itself, which has come from
dot-com laughingstock to the fifth most-valuable U.S. Internet
company—if one still really considers it a U.S. company, because 90
percent of its profits come
from overseas, most of them from Booking.com.
Everyone knows Booking—and Priceline—now.
A year after taking over from now-chairman Jeffery Boyd, Huston is building a Priceline in his own image. It's bigger, certainly, and makes bigger deals than ever, dwarfing the $135 million buy of Booking itself in 2005. But it's also becoming more of a technology-services business, reflecting Huston's own software background. And—reflecting Huston's early career stops in consumer services (at Starbucks) and as a McKinsey consultant—Huston's Priceline is keeping Boyd's focus on maniacally minding the details of online-advertising tactics and software design.
"When they recruited him for Booking, it was clear he was the guy,'' said Philip Wolf, founder of PhoCusWright, an online-travel consulting group that runs the industry's most influential annual conference. "If you get the job to fill Jeff Boyd's shoes, that's pretty tough. Darren not only stepped in but picked up the pace."
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from overseas, most of them from Booking.com.
Everyone knows Booking—and Priceline—now.
A year after taking over from now-chairman Jeffery Boyd, Huston is building a Priceline in his own image. It's bigger, certainly, and makes bigger deals than ever, dwarfing the $135 million buy of Booking itself in 2005. But it's also becoming more of a technology-services business, reflecting Huston's own software background. And—reflecting Huston's early career stops in consumer services (at Starbucks) and as a McKinsey consultant—Huston's Priceline is keeping Boyd's focus on maniacally minding the details of online-advertising tactics and software design.
"When they recruited him for Booking, it was clear he was the guy,'' said Philip Wolf, founder of PhoCusWright, an online-travel consulting group that runs the industry's most influential annual conference. "If you get the job to fill Jeff Boyd's shoes, that's pretty tough. Darren not only stepped in but picked up the pace."
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"I'm a hands-on operator, and I have a background in software. Right outside my door, they are building the site. There's not a semicolon on any of our sites that isn't A/B tested."
The most obvious difference is the size of the deals Priceline is making, like buying restaurant-reservation site OpenTable for $2.6 billion last year, after Huston helped with Boyd's $1.8 billion 2013 purchase of the travel metasearch site Kayak.com.
Huston's also making an expanded push into back-office technology for
hotels, to wring more revenue from the 60,000-plus lodging
establishments for which Priceline sells rooms.
As well, Huston's consulting background is evident in how he orchestrates small teams of executives to dig in to the nitty-gritty of what appears on each of the company's sites, with Huston himself watching the results of tests that try selling the same resort two different ways.
"I'm a hands-on operator, and I have a background in software," Huston said. Boyd was a lawyer who worked in health insurance before joining Priceline in 1999. "Right outside my door, they are building the site. There's not a semicolon on any of our sites that isn't A/B tested.''
With Priceline now a $60 billion colossus selling $50 billion worth of travel in 2014, Huston's at pains to emphasize that he and Boyd are closer in strategy than they are in background. Boyd, too, became known as an operator—after Priceline bought Booking.com, it zoomed past rival Expedia to become Europe's consumer-travel leader, relying primarily on a nuts-and-bolts mastery of online advertising. And, as Huston said, "I was there when Jeff bought Kayak, and he was still here when I bought OpenTable."
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As well, Huston's consulting background is evident in how he orchestrates small teams of executives to dig in to the nitty-gritty of what appears on each of the company's sites, with Huston himself watching the results of tests that try selling the same resort two different ways.
"I'm a hands-on operator, and I have a background in software," Huston said. Boyd was a lawyer who worked in health insurance before joining Priceline in 1999. "Right outside my door, they are building the site. There's not a semicolon on any of our sites that isn't A/B tested.''
With Priceline now a $60 billion colossus selling $50 billion worth of travel in 2014, Huston's at pains to emphasize that he and Boyd are closer in strategy than they are in background. Boyd, too, became known as an operator—after Priceline bought Booking.com, it zoomed past rival Expedia to become Europe's consumer-travel leader, relying primarily on a nuts-and-bolts mastery of online advertising. And, as Huston said, "I was there when Jeff bought Kayak, and he was still here when I bought OpenTable."
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Just a regular, data-savvy guy
The most obvious thing they have in common is a no-drama
style. Boyd's even keel helped to right Priceline's course after the
carnival-barker days of founder and ex-CEO Jay Walker, who led the
onetime "Name Your Own Price" pioneer to a $16-a-share 1999 initial
public offering and a stock price that multiplied 10-fold within two
months of the IPO—followed by a crash that took shares to $1.05, even as
1999's $1 billion net loss narrowed to $7.3 million by 2001, the year
Boyd became president. After a 6-1 reverse stock split in 2003, shares
now trade at $1,175 after approaching $1,380 last year.
"He's such a regular guy," Wolf said, adding that Huston's management mantra, repeated often around the industry, is "humble and hungry."
The former aide to Canadian Labor politicians went from business school at Cornell to McKinsey and jumped to Starbucks, where he bought the Tazo tea business and launched the coffee chain's then-cutting-edge in-store Wi-Fi. Recruited by Steve Ballmer, his Microsoft stint taught him how to create new products and run large franchises, like Microsoft Japan. Put together, his blend of international experience, data savvy and consumer marketing led Booking to his cell phone during a Vancouver Canucks game.
"It has really all been about performance-fueled cultures led by entrepreneurs," Huston said.
"He's such a regular guy," Wolf said, adding that Huston's management mantra, repeated often around the industry, is "humble and hungry."
The former aide to Canadian Labor politicians went from business school at Cornell to McKinsey and jumped to Starbucks, where he bought the Tazo tea business and launched the coffee chain's then-cutting-edge in-store Wi-Fi. Recruited by Steve Ballmer, his Microsoft stint taught him how to create new products and run large franchises, like Microsoft Japan. Put together, his blend of international experience, data savvy and consumer marketing led Booking to his cell phone during a Vancouver Canucks game.
"It has really all been about performance-fueled cultures led by entrepreneurs," Huston said.
While the recent deals may seem big, RBC Capital Markets
analyst Mark Mahaney pointed out that OpenTable and Kayak are no bigger,
relative to the market value of Priceline itself, than Booking.com was
12 years ago. Wolf added that Huston's most important deals may be the
$98 million that Priceline spent last year to buy Barcelona-based Hotel
Ninjas and Seattle-based Buuteeq, which make relationship-marketing and
back-office management software for hotels, to create an integrated
product called BookingSuite. The idea is to let hotels use sophisticated
data-mining to sell rooms, which is especially attractive to the
independent hotels that lead the European and Asian markets and don't
have the backing of big chains with their own data systems.
"They're going after thousands of hotels, trying to take over 8 to 10 different bills [for technology vendors] that each of them pays every month," Wolf said. "It's an aggregation of different services, and the price and quality will be much superior."
Huston described that strategy as using Priceline's scale to deliver a better product in the same way big technology companies often roll up, or roll over, smaller competitors in fragmented emerging markets. It's too soon to know how well it's working: Priceline doesn't break out results. And, he said, "new things have to be a pretty good size to make a difference" at a company as big as Priceline.
The company also isn't saying much yet about the OpenTable deal, other than that they are investing heavily enough in the business to narrow the entire company's operating margins, according to Mahaney. (Huston said some of that money is going to re-engineer OpenTable to work in the cloud.) Kayak has already proved its usefulness in helping the company contain the growth of its online advertising budget, since money Priceline spends at Kayak is kept in-house, he said.
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"They're going after thousands of hotels, trying to take over 8 to 10 different bills [for technology vendors] that each of them pays every month," Wolf said. "It's an aggregation of different services, and the price and quality will be much superior."
Huston described that strategy as using Priceline's scale to deliver a better product in the same way big technology companies often roll up, or roll over, smaller competitors in fragmented emerging markets. It's too soon to know how well it's working: Priceline doesn't break out results. And, he said, "new things have to be a pretty good size to make a difference" at a company as big as Priceline.
The company also isn't saying much yet about the OpenTable deal, other than that they are investing heavily enough in the business to narrow the entire company's operating margins, according to Mahaney. (Huston said some of that money is going to re-engineer OpenTable to work in the cloud.) Kayak has already proved its usefulness in helping the company contain the growth of its online advertising budget, since money Priceline spends at Kayak is kept in-house, he said.
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"Europeans will give up cars and coffee before their vacations. We're talking about an acceleration outlook, which usually works well for stocks, especially those like Priceline that began the year with trough multiples."
The idea behind the acquisition strategy is that each deal
adds some new capability to Priceline. OpenTable adds restaurants and
some technology that may be useful in expanding BookingSuite, while
Kayak adds a broader audience, a base in advertising revenue and
expertise in metasearch. At the same time, rival Expedia
has been making deals to broaden its hold on its core
business—travel-agency services for hotels and airlines, mostly in the
U.S.—by buying Travelocity ($280 million) and Orbitz ($1.3 billion), as well as acquiring Asia-Pacific online travel company Wotif, for more than $600 million in 2014.
"Acquisitions like that take years to play out," said Mahaney, who rates Priceline "outperform" and predicts its shares will hit $1,450. "They have been very patient in the deals they've done, and they never overpay.''
In the short term, Huston's success or failure won't really be determined by the deals he's made. As usual for Priceline, it will boil down to the company's mastery of details and the macroeconomic path of economies in Asia and especially Europe. Mahaney has even backed off his guess that Priceline might make a new acquisition in the vacation-rental business—speculation has centered around HomeAway as a counterpoint to sharing-economy leader Airbnb. With Priceline boosting its vacation-rental business organically, Mahaney said Priceline doesn't need a deal.
The more assured path to gains for Priceline is for a recovering European economy to meet up with the company's consistent execution and the winding down of the post-merger reinvestment in Kayak and OpenTable, Mahaney said. Priceline's growth slowed in late 2014 as Europe stumbled, but revenue still rose 19 percent in the fourth quarter and 24 percent for the year. With shares below 21 times this year's consensus profit estimate of $57.32 a share, that gives Priceline room to zoom as both margins and top-line growth re-accelerate, the RBC analyst said. Mahaney said fast growth in the company's Asian business will also boost profits.
"Europeans will give up cars and coffee before their vacations,'' Mahaney said. "We're talking about an acceleration outlook, which usually works well for stocks, especially those like Priceline that began the year with trough multiples.''
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Only over time will it become clear whether Huston's deal-making and re-engineering is taking Priceline to a new place. But Wolf is betting that it will.
"He's like Boyd in keeping his hands off division managers and keeping their organization lean,'' Wolf said. "And he understands that his job is to build new shoes.''
"Acquisitions like that take years to play out," said Mahaney, who rates Priceline "outperform" and predicts its shares will hit $1,450. "They have been very patient in the deals they've done, and they never overpay.''
In the short term, Huston's success or failure won't really be determined by the deals he's made. As usual for Priceline, it will boil down to the company's mastery of details and the macroeconomic path of economies in Asia and especially Europe. Mahaney has even backed off his guess that Priceline might make a new acquisition in the vacation-rental business—speculation has centered around HomeAway as a counterpoint to sharing-economy leader Airbnb. With Priceline boosting its vacation-rental business organically, Mahaney said Priceline doesn't need a deal.
The more assured path to gains for Priceline is for a recovering European economy to meet up with the company's consistent execution and the winding down of the post-merger reinvestment in Kayak and OpenTable, Mahaney said. Priceline's growth slowed in late 2014 as Europe stumbled, but revenue still rose 19 percent in the fourth quarter and 24 percent for the year. With shares below 21 times this year's consensus profit estimate of $57.32 a share, that gives Priceline room to zoom as both margins and top-line growth re-accelerate, the RBC analyst said. Mahaney said fast growth in the company's Asian business will also boost profits.
"Europeans will give up cars and coffee before their vacations,'' Mahaney said. "We're talking about an acceleration outlook, which usually works well for stocks, especially those like Priceline that began the year with trough multiples.''
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Only over time will it become clear whether Huston's deal-making and re-engineering is taking Priceline to a new place. But Wolf is betting that it will.
"He's like Boyd in keeping his hands off division managers and keeping their organization lean,'' Wolf said. "And he understands that his job is to build new shoes.''
Lessons learned
1. Small teams + attention to detail = results.Huston's consulting background at McKinsey made him a fan of using small teams that intensely study specific operations questions. At Priceline, which was already a detail-oriented culture, he's using these teams to handle issues as small as A/B tests for specific features on the companies sites and as important as re-engineering technology acquired in the OpenTable deal.
2. Small acquisitions can bring big results.
Priceline's huge success has stemmed principally from the acquisition of Booking.com, a deal that cost less than $200 million. More recent small deals to build out Priceline's technology platform may let it become a behind-the-scenes services provider to hotels, making a significant new business.
3. Online marketing works—if you're fanatical about it.
While William Shatner is the familiar face of Priceline, its ad budget is spent mostly online. Priceline is known for its disciplined analysis of its online spending and its mastery of search-engine optimization.
4. Humility is good.
Priceline's renaissance stemmed largely from detoxifying the company of founder Jay Walker's capacious ego. Former Priceline chairman Jeff Boyd, whom Huston replaced as CEO, set a more modest tone. Huston's been known to spice his speeches with the mantra: Stay "hungry and humble.''
—By Tim Mullaney, special to CNBC.com
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